Doldrums Troubling Housing Developers

By MARK McCAIN

Published: September 24, 1989

WITH birch trees and rhododendrons spread across their lush lawns, seven new town houses at the Racquet Club on Long Island Sound look like the pride of loving homeowners. But a wasteland of mud ponds and hardpan that surrounds this manicured oasis in Centerville, L.I., offers evidence of big plans gone awry.

Bulldozers gouged 20 acres out of an oak forest there, 75 miles east of Manhattan, to make way for more than 200 homes. But after spending more than $12 million on land, site work, roads, construction and advertising, the developers found no buyers. The seven model homes now sit locked and empty.

''We figured we'd capture the yuppie market from Wall Street,'' said Dick Dickler of Jericho, L.I., one of the principals. ''My bank bought the concept, my partners bought the concept, but it simply did not work. After the stock market crash of Oct. 19, the yuppie market died on us. We even put ads in the papers to see what would happen at prices $20,000 below our costs. That didn't generate any sales, either.''

Throughout the metropolitan New York area, while some developers continue to start new projects, many others have been thrown into difficult times. No longer are buyers searching out every new project, like the Racquet Club, which Mr. Dickler decided to build two years ago on a 111-acre tract.

''At that point, business was booming for us,'' he said. ''We had all kinds of jobs under way. Sales were very, very good and we had an insatiable appetite for more property.''

But today some developers are choking on past excesses. The most beleaguered ones, burdened by mounting debts, are trying to sell off land they no longer need and speculative houses they never should have built.

''Don't buy that new Cadillac just yet,'' warned Builder, a trade magazine for residential developers, in a recent forecast. ''There's an industry shakeout coming and many of you won't make it.''

Actually, the shakeout has already begun. Strong builders like Heritage Development Group of Southbury, Conn., are analyzing opportunities to buy aborted projects at distressed prices.

''Banks are inheriting certain projects,'' said Henry J. Paparazzo, president of Heritage, which expects to sell about 100 homes this year - down nearly 50 percent from 1988. ''Basically, some developers don't have the wherewithal to carry their jobs the extra distance. They can't make bank payments.''

Even without any houses languishing on the market, a developer can slip into financial distress. Land represents about one-quarter of the cost of new homes, and developers usually operate with other people's money, so too many building lots can rapidly translate into too much debt.

''In the mid-1980's, builders were looking out toward some very prosperous years, so they were happy to have large inventories of land,'' said Robert Ritter, vice president of Robert-Mark Real Estate, a brokerage in Hopewell Junction, N.Y., near Poughkeepsie. ''But now they're trying to liquidate inventory.''

Savvy developers are adjusting to this leaner era, with its reduced profit margins and reduced sales activity. They are sharpening market strategies - knowing that buyers have become more selective since the mid-1980's, when inferior design and inferior location did not rule out success.

''What we're going through is a perfectly healthy process of weeding out bad builders,'' said Michael Barile, president of Lynlil Builders of Mahopac, N.Y., which expects to sell about 50 houses this year. ''Three years ago, anyone with some cash saved up wanted to be a builder. I was selling house lots to owners of pizza parlors and to people who worked for I.B.M. And basically, most of the spec homes still stuck on the market were built by inexperienced people.''

Mr. Barile has cut back sharply on ''spec houses'' - which are built on speculation before lining up buyers - and has pared down his average price.

''IN my market, the resistance point of buyers used to be around $450,000,'' he said. ''Now it's more like $350,000.''

Shrinking pocketbooks have become a common phenomenon in nearly every market niche. Gerald Kreisberg has a 120-unit subdivision called Wedgewood in Newburgh, N.Y., on the Hudson River 25 miles north of the New Jersey border, where his first 75 houses sold rapidly in the $150,000 range.

''But now the tight market has even caught up with us in Orange County,'' Mr. Kreisberg said. ''People priced out of Rockland and Dutchess Counties used to come here, but now even we're too expensive. So we have to lower our sights to meet the market.'' Early last month, he began advertising a raised-ranch model for $130,000. That has generated some interest, but sales are still slow.

''While I closed about 50 sales last year, I may close 20 or so this year,'' he said. ''And if I achieve that volume, I'll probably be doing much better than most of my peers.''

Clearly, buyers have revolted against rising prices. For about five years, demand for housing was so strong that anyone with a piece of the action - developers, land owners, tradespeople - could expect their fortunes to improve with each passing month. But now buyers are refusing to play along, and that has thrown the new-home industry into turmoil.